Packing the wrong plastic can add significantly to the expense of a foreign holiday, so anyone heading overseas in the coming months would be well advised to start thinking now about which payment cards to take.

Credit cards offer a safer alternative to carrying large amounts of cash. They also provide payment protection for larger purchases and allow you to spread the cost. But they can prove costly if you make a poor choice.

The majority charge a foreign exchange or non-sterling transaction fee when used abroad. On average, this adds 2.9 per cent to every payment made.

It can be even more painful if you withdraw cash. Fees for using overseas ATMs range from 2 to 5 per cent – and these are in addition to the transaction fee. This means you could end up paying 7.9 per cent extra for each withdrawal.

If you took out £500, the additional cost could be almost £40, while someone withdrawing £1,000 might be charged nearly £80.

And this is before any interest has been applied. Most cards add this from day one on cash withdrawals and often at a far higher rate than for purchases – it is not unusual to pay as much as 30 per cent a year.

Matt Sanders, credit card spokesperson for Gocompare.com, said: “For many of us, using a credit card while on holiday can feel like a safer and more flexible option than taking large amounts of cash away with us.

“While opting for a card over cash has benefits such as increased protection should it be lost or stolen, it’s well worth checking whether your provider will charge you for using your credit card overseas, as the majority will.”

There are exceptions, though, and applying for one of these could save you a considerable amount of money.

Mr Sanders said: “There are some cards that don’t charge a fee for overseas use, so if you are considering spending on plastic while you’re on holiday, it could be worth getting online and shopping around for a card that suits your needs while you’re away.”

MBNA’s Everyday Plus Amex, Creation’s Everyday MasterCard and Halifax’s Clarity MasterCard don’t apply foreign usage or cash machine fees. The MBNA card typically charges 7.4 per cent annual interest on purchases and withdrawals, Creation charges 12.9 per cent for both and Clarity 18.9 per cent.

Several other cards don’t charge for foreign transactions, but they do add a fee of 2 to 3 per cent to cash withdrawals, often with a £2 to £3 minimum.

Using a debit card abroad can be even more expensive. As well as adding exchange commission of between 2.75 and 2.99 per cent, many charge up to £1.50 each time you make a purchase.

However, although – like credit cards – most debit cards levy an ATM fee on top of the transaction fee when you withdraw cash, they don’t charge interest.

This means that while it makes sense to take a low-cost credit card for purchases, a debit card is often cheaper for making withdrawals. Before you travel, check with your bank how much yours will charge.

If you don’t like the answer, consider taking a prepaid currency card instead. You load this with your chosen currency before leaving home and use it like a credit or debit card until the money runs out. If you are visiting more than one country, it may be easiest to opt for a sterling card.

Most financial comparison sites list prepaid cards – look for one with no transaction fees and the most favourable combination of charges for issue, foreign exchange and cash withdrawals for your likely spending pattern.

For sterling, Which.co.uk recommends FairFx’s Anywhere card, which charges 1.4 per cent for foreign exchange, £1 for ATM use and allows free top ups, and CaxtonFx’s Global Traveller, which has a 2.49 per cent exchange fee and free ATM use and top ups.

Which’s favourite cards with euro and dollar options are Revolut, AceFx and Moneycorp’s White Explorer.

Whether you use a credit, debit or (non-sterling) prepaid card, if the retailer offers the option of paying in sterling, refuse, as you will be charged a very unfavourable exchange rate. Some businesses apply what is known as “dynamic currency conversion” automatically, so if they don’t mention it, ask them not to and check your bill before paying.

It is always wise to take some cash for small purchases, but don’t buy from airport or ferry bureaux de change, as the rates are always poor. And don’t pay for your cash with a credit card, as this will count as a withdrawal and start attracting interest right away.

If you do decide to apply for a new credit card, be sure to do it in plenty of time, as it could take several weeks to arrive.

And don’t forget to tell the provider where you are going – if you don’t, when it sees the foreign transactions, it may assume the card has been stolen and block it.

CASE STUDY

Pawel Kowalewski applied for Halifax’s Clarity credit card because it doesn’t charge a fee for overseas use or cash withdrawals.

The Edinburgh-based chef said: “I chose it because I felt it was the best option for going abroad and I’m a Polish football supporter, so I go wherever Poland go.

“I’ve got other cards, but they don’t have this facility, so I’m very pleased with it and would recommend it to other people.”

Clarity has the same long-term rate of 18.9 per cent for purchases, cash withdrawals and balance transfers.

Mr Kowalewski, who has had the card for nine months, said: “I would use it in preference to my other cards now for basic things like shopping or if I wanted to buy something online.

“But I make sure I clear it every month, so I never have to pay any interest.”